Question 1

Because not all prices adjust instantly to changing conditions, an unexpected fall in the price level leaves some firms with higher-than-desired prices, and these higher-than-desired prices depress sales and induce firms to reduce the quantity of goods and services they produce.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following does NOT determine the long-run level of real GDP?

Accepted Answer

A)   the price level
B)   the supply of labour
C)   available natural resources
D)   available technologyE) A) and C)
F) C) and D)

Question 3

According to the classical view in economics, which variable or policy can influence economic growth in the long run?

Accepted Answer

A)   an increase in capital stock
B)   an increase in money supply
C)   an increase in unemployment benefits
D)   an increase in nominal interest ratesE) None of the above
F) B) and D)

Question 4

What happened in the first few years of the Great Depression?

Accepted Answer

A)   Unemployment rose by about 10 percent, and prices rose about 27 percent.
B)   Unemployment rose by about 19 percent, and prices rose about 12 percent.
C)   Unemployment rose by about 20 percent, and prices fell about 12 percent.
D)   Unemployment rose by about 21 percent, and prices fell about 19 percent.E) None of the above
F) A) and B) D

Question 5

Which statement best describes the effects of a fall in the price level?

Accepted Answer

A)   The real exchange rate and interest rates rise.
B)   The real exchange rate and interest rates fall.
C)   The real exchange rate falls, and interest rates rise.
D)   The real exchange rate rises, and interest rates fall.E) C) and D)
F) B) and D)

Question 6

Fluctuations in real GDP are caused only by changes in aggregate demand and not by changes in aggregate supply.

Accepted Answer

A) True 
 B)False

Question 7

Which statement is consistent with an increase in the quantity of output supplied, according to the misperceptions theory?

Accepted Answer

A)   The price level increases less than expected so that firms believe the relative price of their output has increased.
B)   The price level increases less than expected so that firms believe the relative price of their output has decreased.
C)   The price level increases more than expected so that firms believe the relative price of their output has increased.
D)   The price level increases more than expected so that firms believe the relative price of their output has decreased.E) B) and C)
F) A) and B)

Question 8

What were the changes in output in the early 1930s and early 1940s in Canada, respectively?

Accepted Answer

A)   a large increase and a large increase
B)   a large increase and a large decrease
C)   a large decrease and a large increase
D)   a large decrease and a large decreaseE) None of the above
F) A) and B)

Question 9

What happens to prices and output when the long-run aggregate-supply curve shifts left?

Accepted Answer

A)   Prices and output both increase.
B)   Prices and output both decrease.
C)   Prices increase and output decreases.
D)   Prices decrease and output increases.E) B) and D)
F) B) and C)

Question 10

According to classical economic theory, which of the following do changes in the money supply affect?

Accepted Answer

A)   real GDP
B)   real interest rates
C)   the price level
D)   unemploymentE) None of the above
F) A) and C)

Question 11

How does the aggregate demand and aggregate supply model reflect a rise in wage rates?

Accepted Answer

A)   The short-run aggregate-supply curve shifts to the right.
B)   The short-run aggregate-supply curve shifts to the left.
C)   The aggregate-demand curve shifts to the right.
D)   The aggregate-demand curve shifts to the left.E) B) and C)
F) C) and D)

Question 12

Suppose the economy was in long-run equilibrium when a sudden decline in the stock market took place. What happens in the short run after the decline in the stock market?

Accepted Answer

A)   Both the price level and real GDP rise.
B)   The price level falls and real GDP does not change.
C)   The price level does not change and real GDP falls.
D)   Both the price level and real GDP fall.E) B) and C)
F) C) and D)

Question 13

What happens to aggregate demand if people want to save more for retirement and the government raises taxes?

Accepted Answer

A)   Aggregate demand shifts right.
B)   Aggregate demand shifts left.
C)   If people save more, aggregate demand shifts right; if the government raises taxes, aggregate demand shifts left.
D)   If people save more, aggregate demand shifts left; if the government raises taxes, aggregate demand shifts right.E) A) and C)
F) A) and B)

Question 14

Which of the following shifts the short-run aggregate supply right?

Accepted Answer

A)   an increase in the money supply
B)   an increase in the minimum wage
C)   a decrease in the price of oil
D)   a decrease in immigration from abroadE) None of the above
F) All of the above

Question 15

How are the effects of an increase in the price level that is greater than expected shown in the aggregate demand and aggregate supply model?

Accepted Answer

A)   by shifting the short-run aggregate-supply curve right
B)   by shifting the short-run aggregate-supply curve left
C)   by moving to the right along a given aggregate-supply curve
D)   by moving to the left along a given aggregate-supply curveE) A) and B)
F) B) and C) C

Question 16

If the economy is initially in long-run equilibrium, which statement best describes the effects of a shift in aggregate demand?

Accepted Answer

A)   Prices and output are affected in both the short and long run.
B)   Prices and output are affected only in the short run.
C)   Prices are affected in the long and short run, but output only in the short run.
D)   Prices are affected in the long and short run, but output only in the long run.E) A) and B)
F) B) and C)

Question 17

In the aggregate demand and aggregate supply model, when does the aggregate quantity of goods demanded increase?

Accepted Answer

A)   when real wealth rises
B)   when the interest rate rises
C)   when the dollar appreciates
D)   when the expected price level risesE) A) and D)
F) A) and C) A

Question 18

Which of the following shifts aggregate demand to the left?

Accepted Answer

A)   an increase in exports
B)   an increase in taxes
C)   a decrease in imports
D)   a decrease in interest ratesE) A) and B)
F) A) and C)

Question 19

If the government increased the money supply in response to a decrease in aggregate supply, unemployment would return towards its natural rate, but prices would rise even more.

Accepted Answer

A) True 
 B)False

Question 20

What did Keynes believe caused recessions and depressions?

Accepted Answer

A)   excess aggregate demand
B)   inadequate aggregate demand
C)   excess aggregate supply
D)   inadequate aggregate supplyE) All of the above
F) A) and D)

Exam 14: Aggregate Demand and Aggregate Supply

Because not all prices adjust instantly to changing conditions, an unexpected fall in the price level leaves some firms with higher-than-desired prices, and these higher-than-desired prices depress sales and induce firms to reduce the quantity of goods and services they produce.

Correct AnswerverifiedShow Answer

Which of the following does NOT determine the long-run level of real GDP?

Correct AnswerverifiedShow Answer

According to the classical view in economics, which variable or policy can influence economic growth in the long run?

Correct AnswerverifiedShow Answer

What happened in the first few years of the Great Depression?

Correct AnswerverifiedD

Which statement best describes the effects of a fall in the price level?

Correct AnswerverifiedShow Answer

Fluctuations in real GDP are caused only by changes in aggregate demand and not by changes in aggregate supply.

Correct AnswerverifiedShow Answer

Which statement is consistent with an increase in the quantity of output supplied, according to the misperceptions theory?

Correct AnswerverifiedShow Answer

What were the changes in output in the early 1930s and early 1940s in Canada, respectively?

Correct AnswerverifiedShow Answer

What happens to prices and output when the long-run aggregate-supply curve shifts left?

Correct AnswerverifiedShow Answer

According to classical economic theory, which of the following do changes in the money supply affect?

Correct AnswerverifiedShow Answer

How does the aggregate demand and aggregate supply model reflect a rise in wage rates?

Correct AnswerverifiedShow Answer

Suppose the economy was in long-run equilibrium when a sudden decline in the stock market took place. What happens in the short run after the decline in the stock market?

Correct AnswerverifiedShow Answer

What happens to aggregate demand if people want to save more for retirement and the government raises taxes?

Correct AnswerverifiedShow Answer

Which of the following shifts the short-run aggregate supply right?

Correct AnswerverifiedShow Answer

How are the effects of an increase in the price level that is greater than expected shown in the aggregate demand and aggregate supply model?

Correct AnswerverifiedC

If the economy is initially in long-run equilibrium, which statement best describes the effects of a shift in aggregate demand?

Correct AnswerverifiedShow Answer

In the aggregate demand and aggregate supply model, when does the aggregate quantity of goods demanded increase?

Correct AnswerverifiedA

Which of the following shifts aggregate demand to the left?

Correct AnswerverifiedShow Answer

If the government increased the money supply in response to a decrease in aggregate supply, unemployment would return towards its natural rate, but prices would rise even more.

Correct AnswerverifiedShow Answer

What did Keynes believe caused recessions and depressions?

Correct AnswerverifiedShow Answer

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D

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C

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A

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